Spirit Airlines Awaits DOJ Decision on JetBlue Merger, Posts Losses

Low-cost carrier Spirit Airlines expects anti-trust regulators to hand down a decision on its proposed $3.8 billion merger with competitor JetBlue in the next 30 days.

Spirit Airlines shareholders voted in October to sell the Miami-based ultra-low-cost carrier to competitor JetBlue for $3.8 billion. The move would create the fifth largest U.S. airline and “the most compelling national low-fare challenger to the dominant U.S. carriers,” said Spirit CEO Ted Christie at the time.

The resulting airline would be called JetBlue, still based in New York and led by JetBlue CEO Robin Hayes. It would be provisioned with 458 aircraft and 34,000 employees.

Illustration: Courtesy of JetBlue Airways

Spirit’s planes would be given JetBlue livery, and their seating configuration would be standardized with JetBlue’s current product.

JetBlue forecasts that the merged company will bring in $11.9 billion in revenue annually. First, however, the deal has to win approval from anti-trust regulators. To do so, the airlines must convince the Department of Justice and the Department of Transportation that the merger won’t negatively impact air travel in the U.S.

It’s a high hurdle to clear. Under President Biden, the Department of Justice has vehemently opposed corporate consolidation, especially in industries already dominated by a few companies.

The Department has already sued to prevent a strategic partnership between JetBlue and American Airlines in the north-eastern corridor, which would see the carriers coordinate flights between New York and Boston. A hearing was held on that case in September, with a decision from a judge imminent.

Photo: Courtesy of JetBlue Airways

Additionally, Massachusetts Senator Elizabeth Warren has urged Transportation Secretary Pete Buttigieg to intervene to prevent the JetBlue and Spirit merger, which she argues would reduce competition in commercial aviation.

“There is ample evidence that yet another huge airline merger would likely harm American consumers,” she wrote.

Increasing Competitiveness

JetBlue contends that the elevation of a new competitor would benefit consumers and diversify an industry that, after a series of mergers a decade ago, has been dominated by four major players.

American, Delta, United, and Southwest currently control two-thirds of domestic air travel. The nearest competitors—Alaska, JetBlue, and Spirit—lag far behind, each controlling around 5 percent of the market.

“JetBlue wants to have the opportunity to more effectively compete with those legacy carriers. The most financially effective way we believe we can do that is by purchasing Spirit because we get access to more Airbus airplanes … and we also get access to infrastructure in cities that tend to be very challenging to grow in,” said JetBlue’s CFO Ursula Hurley in a promotional video released as part of the carrier’s public relations campaign in support of the merger.

However, regulators are also concerned that the merger could disrupt the current air traffic patterns, with operations and connections likely to be reduced at some of Spirit’s strongest airports and ticket prices liable to rise at airports where both carriers operate.

Lawsuits Attempting to Stop the Merger

Last month, a group of Florida-based travelers and travel agents filed a lawsuit to stop the merger, arguing that it will hike fares at Orlando International Airport (MCO) and Fort Lauderdale-Hollywood International Airport (FLL), where JetBlue and Spirit each control a large share of the market.

Whether the Department of Justice also files suit against the merger will be announced within the “next 30 days,” said Spirit boss Christie in a call to investors this week. “That’s really all we have to say on the topic for now,” he said.

However, sources suggest that the Department of Justice has been sending depositions in preparation for a lawsuit to block the union.

Photo: Courtesy of JetBlue Airways

Meanwhile, Spirit reported a net loss of $271 million for the fourth quarter of last year, -211.5 percent higher than its net loss in the same quarter in 2021, suggesting a slow recovery from the pandemic. Like other carriers, Spirit was also hit by high fuel costs, supply chain disruption, and poor weather during the peak holiday season.

Christie remained optimistic. “In the fourth quarter of 2022, despite the significant number of weather-related flight cancellations during the peak holiday period, our team delivered better-than-expected unit revenue performance,” he said.

He added that the airline “made excellent progress on the steps necessary to return Spirit to sustained profitability.”